What to trust: update on portability and trust strategies.

• Author: Foss, Mary Kay

The latest round or estate tax law changes are "permanent," but can our clients avoid estate planning? First, let's look at what has happened. veil discuss whether the law change will require our clients to amend existing estate plans.

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What Happened?

The Applicable Exclusion Amount, which is the estate tax exemption, was increased in December 2010 to $5 million and allowed to increase by inflation beginning in 2012. For 2011-12 a new rule allowed additional exemption when a decedent is survived by a spouse. This is called "portability." and it meant that any or all of the 2011-12 Applicable Exclusion Amount not used by the estate of a deceased spouse can be transferred to the surviving spouse by filing Form 706 on time. The rule and the increased exemption were scheduled to expire Dec. 31, 2012 but were permanently extended as 2012 came to a close.

The important new catchphrase is the Deceased Spouse Unused Exclusion (DSUE) amount, which cannot exceed the survivor's exclusion amount for the year of the survivor's death. This comes into play if the annual exclusion should decrease in the future.

The IRS issued temporary regulations governing portability, which were effective June 15, 2012. The executor is the one who is authorized to file the timely Form 706 return to elect portability. The last timely filed return including extensions will control the calculation of the DSUE amount. Once die estate tax return due date including extensions actually granted) has passed, the election is irrevocable.

Notice 2011-82 said that the estate must file a complete and properly prepared return. The temporary regulations relax this requirement to provide that the estate need not report the value of property that qualifies for the marital or charitable deduction. However, the estate must estimate the value of the gross estate. The return instructions show ranges of dollar values, and the estate must identify the range within which it estimates the gross estate falls. Of course, the executor will have to determine the value of most assets passing to the spouse to determine the basis of the assets, and may have to do so for state estate tax purposes, or I or other reasons in connection with the administration of the estate.

In certain cases, the estate will nevertheless be required to report the value of property qualifying for the marital or charitable deduction. The estate will have to report the value of these assets if:

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